Quiz 3

NAME:

Quiz #3

ANSWER ALL OF THE FOLLOWING:

1. What is the relationship between customer groups, distinctive competencies, product differentiation, customer needs and market segmentation?
2. What are the advantages of following a differentiation strategy?
3. How does diversification, either related or unrelated, create value? List at least 3 ways. Can diversification dissipate value? How?
4. Global expansion allows value to be created. Describe how.
5. List two major differences between the German market and the US market in terms of comparative national investment systems (from article).

ANSWERS TO QUIZ 3, SPRING 1995

1. (pp 143-45) These are at the heart of business-level strategy because they provide competitive advantage. Customer needs are anything that can be satisfied by means of a product or service's characteristics. Therefore, product differentiation is the process of creating a competitive advantage by designing product characteristics to satisfy these needs. Market segmentation is the way you decide to group customers based on differences in preferences. The number of groups will have an impact on the number/types of products you will offer. Distinctive competence is the means by which we attempt to satisfy these needs and groups in order to gain a competitive advantage.
2. (pp 149-152) In context of the 5 Forces model, differentiation safeguards you against competitors via brand loyalty. You can also pass through added costs (via price increases). You can create, or increase, entry barriers. You can have an impact on substitutes by forcing them to overcome brand loyalty.
3. (pp 217-218) Most firms first consider diversification when they generate financial resources in excess of what is necessary to maintain competitive advantage in their core business.

   Diversification can create value by:

   1. Internal capital market -- Via allocation of funds, like a stock market, to well-performing units.
   2. Restructuring -- By having corporate management weed out underperforming or poorly managed unit operations.
   3. Skills transfer among businesses -- Firms draw on distinctive skills in a firm's value-creating functions. Or they may acquire a firm in a different business in order to use these skills in older pieces of the existing firm. For this strategy to work, the transferred skills must involve activities important for establishing a competitive advantage.
   4. Sharing resources -- The functions must carry some commonality. The aim is to create value from the realization of economies of scope. (i.e. two or more SBUs sharing facilities, ad campaigns, research and development costs, etc.)
4. (pp 239-241) By the ability to:
   1. Transfer core skills overseas
   2. Using global volume to cover product development costs
   3. Realize scale economies from global volume
   4. Configure the value chain so that individual value-creation functions are performed in locations where valued-added is maximized
5. (article)

   German	American
   Higher investment rates	Less investment in plants and equipment
   Lower profitability rates	Hurdle rates are greater
   More permanent owners	Most sophisticated capital market
   More significant stance	Etc.
   Relationship driven	Transaction driven
   High owner influence	Low influence
   Uses insider information	Uses outside information
   Dedicated capital	Fluid capital
   Over-invests in items	Under-invests, especially in intangibles
   Invests to boost productivity	Can capture more quickly emerging opportunities
   Over-proliferates in terms of products	Does US?
   Holds on to unprofitable firms/businesses longer	Does US?

Copyright © Dr. Michael W. Pitts

This page last updated November 1995

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